Europe to Trade More Greenhouse Gases, Use More Biofuels

BRUSSELS, Belgium, January 24, 2008 (ENS) – The European Commission has released a set of proposals to expand the current greenhouse gas Emission Trading System to combat global warming and promote renewable energy in the period beyond 2012, when the present trading period ends.

At a news conference introducing the proposals Wednesday, Environment Commissioner Stavros Dimas warned, “On current trends, climate change will almost certainly be endangering the lives of millions of people and causing serious disruption to our economies within the lifetimes of many in this room today.”

“Europe and the rest of the world have to act fast, and act boldly, if we are to prevent this catastrophe,” he said. “Today’s package underlines the European Union’s determination to continue leading global action by example.”

Currently the system allows trading in emissions of carbon dioxide and covers power stations and other combustion plants, oil refineries, coke ovens, iron and steel plants and factories making cement, glass, lime, bricks, ceramics, pulp, paper and board.

The Commission now proposes to include additional sectors and greenhouse gases. Six gases are governed under the Kyoto Protocol, to which the EU member states and the European Union adhere.

Carbon dioxide emissions from petrochemicals, ammonia and aluminium will be included in the expanded trading system, as will emissions of nitrous oxide, N2O, from the production of nitric, adipic and glyoxylic acid. Emissions allowances of perfluorocarbons from the aluminium sector will also be traded.

The capture, transport and geological storage of all greenhouse gas emissions will also be covered.

The new proposals are introduced to help the European Union achieve its greenhouse gas reduction target agreed at the March 2007 meeting of the European Council of Ministers.

At that meeting, the EU adopted an emissions reduction target of at least 20 percent by 2020 compared with 1990 levels.

The reductions target would be raised to 30 percent as long as other industrialized countries commit to comparable efforts in the framework of a global agreement to combat climate change after the Kyoto Protocol expires in 2012.

At the December 2007 United Nations climate change conference in Bali, all nations reached consensus that they would negotiate a global agreement to curb climate change to take the place of the Kyoto Protocol. If that agreement is finalized, it would trigger the EU’s 30 percent greenhouse gas reduction target.

The decision to launch EU-wide negotiations to strengthen the Emissions Trading System was taken at Bali and the negotiations are expected to start in March or April.

Dimas called the 30 percent cut in emissions “crucial.”

“It is a 30 percent cut by developed countries that is needed to get global emissions onto a downward track – and it is a 30 percent cut that we will continue to press for in the international negotiations launched at Bali,” he said.

The European Environmental Bureau, EEB, the largest federation of environmental citizens organizations in Europe representing 143 organizations in 31 countries, welcomed the proposals as “a first step” but said they fall short of what is needed to really curb climate change.

EEB Secretary-General John Hontelez said, “The Commission has been under massive pressure from industry coalitions and several member states to present watered-down proposals and it has, to a certain extent, given in to that pressure.”

“The EEB insists that the EU stick to its agreed objective of keeping global warming below 2 degrees Celsius, which would require the EU to go for a 30 percent reduction target, rather than the 20 percent proposed today,” Hontelez said.

“This would be in line with the Bali conclusion that industrialized countries have cut greenhouse gas emissions by 25-40 percent by 2020,” he said.

Under the new proposals, if all 27 European Union member states and the European Parliament agree, there will be one EU-wide cap on the number of emission allowances instead of the current system of 27 national caps.

The annual cap will decrease along a linear trend line, which will continue beyond the end of the third trading period – 2013-2020.

The system will remain based on trading periods, but the third trading period will last eight years, from 2013 to 2020, as opposed to five years for the second phase from 2008 to 2012.

A much larger share of emissions allowances will be auctioned instead of allocated free of charge. And harmonized rules governing free allocation will be introduced, said the Commission, the executive branch of the EU government.

It is estimated that around 60 percent of the total number of allowances will be auctioned in 2013, and this proportion will increase in later years.

Auctioning of allowances should be the basic principle for allocation from the third phase onwards, the Commission said in a statement. “This is because auctioning best ensures the efficiency, transparency and simplicity of the system and creates the greatest incentive for investments in a low-carbon economy.”

It best complies with the “polluter pays principle” and avoids giving windfall profits to certain sectors that have passed on the notional cost of allowances to their customers despite receiving them for free, the Commission said.

Hontelez said the EEB “deplores” the proposed delays in moving from free emission credits to a system that requires only certain industry sectors to pay for their emissions.

Instead, EEB is calling for “a robust penalty system for exceeding emissions limits to create a level playing field for those businesses that choose to invest in eco-innovation.”

The new Emissions Trading System proposals are detailed here.

At the same time the Commission has proposed a new law, called a directive, setting standards for renewable energy and energy efficiency, and formalizing the 20 percent greenhouse gas emissions target by 2020.

The directive includes a 20 percent increase in energy efficiency and a 20 percent share of renewables in overall EU energy consumption by 2020.

In addition, the law requires a 10 percent biofuel component in vehicle fuel by 2020 and sets sustainability standards for biofuels such as ethanol and biodiesel.

The renewable energy law affects three economic sectors – electricity, heating and cooling and transport. It is up to the member states to decide on the mix of contributions from these sectors to reach their national targets, choosing the means that best suits their national circumstances.

They will also have the option of achieving their targets by supporting the development of renewable energy in other member states and third countries.

The minimum 10 percent share of biofuels in transport is applicable in all member states. “Biofuels tackle the oil dependence of the transport sector, which is one of the most serious issues affecting security of energy supply that the EU faces,” the Commission said.

Biofuels cost more than other forms of renewable energy and without a separate minimum target for biofuels, they will not be developed, said the Commission. “This matters because greenhouse gas trends are worst in transport, and biofuels are one of the few measures – alongside vehicle fuel efficiency – realistically capable of making a significant impact on greenhouse gas emissions from transport.”

While supporting the Commission’s overall efforts to boost renewables, the EEB does not approve of their continued support of “a disputable biofuels policy, despite ever louder warning signals from many sides.”

Hontelez said, “Because of the variation in quality of different biofuels, in addition to the potential knock-on ecological impacts from biodiversity loss, soil degradation and water stress, the arbitrary 10% biofuels target the Commission stubbornly supports is unlikely to provide positive results for the environment.”

The EEB wants the specific biofuels target eliminated altogether.

The Commission’s analysis shows that achieving its renewable energy targets will result in savings of 600 to 900 million metric tons of CO2 emissions per year “holding back the rate of climate change and sending a signal to other countries to do the same.”

Reductions in fossil fuel consumption of 200 to 300 million metric tons per year can be expected, the Commission said, most of it imported.

The Commission anticipates a boost for high-tech industries, new economic opportunities and jobs will result from the new law.

All this will cost approximately €13-18 billion (US$19.19 – $26.57 billion) per year.

“In terms of annual effects on GDP,” said Dimas, “which is in any case a less than perfect measure of progress, the impact of cutting emissions by 20 percent will be as low as 0.04 to 0.06 percent per year.

“As for the benefits,” he said, “the package is expected to deliver the kind of structural changes that Europe needs to remain competitive.”

“By taking the lead, Europe will be kick-starting the development of the low-carbon global economy that is vital to prevent climate change from reaching dangerous levels,” said Dimas. “We are giving ourselves a first mover advantage in a new industrial revolution that will unleash a wave of innovation and job creation in clean energy and high-efficiency technologies.”